Banking reporter

Australia is among a handful of countries where price-to-income and price-to-rent ratios were ''well above'' their historical averages. Photo: Rob Homer

Australian homes are among the most expensive in the world when household incomes and rents are taken into account, International Monetary Fund figures show.

As part of a move to push governments to act against housing bubbles, the fund unveiled comparative data on Thursday morning intended to underline the high cost of homes.

It shows rising prices have pushed two key measures of home values - the ratios of house prices to incomes and prices to rents - well above their long-term averages.

With houses selling for more than four times the average household income, the IMF said this ratio in Australia was much higher than its historical average.

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A 24-country comparison showed that Australian homes were behind only those of Belgium and Canada when judged by this measure.

The other metric it used to measure home values was the ratio of prices to rents. This was also much higher than the long-term average in Australia, which by this criterion ranked fifth most-expensive behind Belgium, Norway, New Zealand and Canada.

IMF deputy managing director Min Zhu said the fund was publishing the data in an attempt to ensure governments moved from a policy of ''benign neglect'' regarding house prices. ''Our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises,'' Mr Zhu said in a blog post.

He also noted Australia was among a handful of countries where price-to-income and price-to-rent ratios were ''well above'' their historical averages.

The IMF data is the latest indication of the high cost of Australian housing, which some economists believe has started to deter buyers. In April, Barclays economist Kieran Davies said prices were ''flashing red'' with prices at 4.3 times household income and 28 times annual rent, both just below record highs.

In a sign the market might be cooling, however, capital city prices recorded their first monthly fall in a year during May, according to RP Data-Rismark. Sydney's median house price fell 1.1 per cent in the month to $678,500 and Melbourne's dipped 3.6 per cent to $555,000.

Australian houses have long stood out as expensive when compared with other nations. But Mr Zhu conceded that detecting overvaluation was ''more art than science'' and it was important to also consider factors such as credit growth and household debt.

On this front, recent figures have been less dramatic. Latest Reserve Bank of Australia figures show housing lending growing at its fastest annual pace in three years, but it is still well below the pace reached before the global financial crisis.

Household debt as a share of disposable income is also at a three-year high, at 148.8 per cent, but remains below record highs.

In order to prevent housing markets from overheating, the IMF recommends governments consider rules to rein in riskier bank lending, which Australia has so far avoided.

Mr Zhu said more than 20 countries had adopted ''macroprudential'' policies such as caps on low-deposit loans or debt-to-income ratios in recent years.

Correction: A previous version of this story, citing an incorrect media release, stated Australia had the second-widest gap between the ratio of house prices to incomes.

174 comments

With negative interest rates in Europe, zero in the US and very cheap in Asia, any hedge fund or player with access to cheap money is just playing any market they can at the expense of real people.Unconnected working slaves cannot access this insanely cheap money to speculate like the players can.

Commenter

slaves

Date and time

June 12, 2014, 9:21AM

The AUD is way too high and that's why you can't have a pay increase, unless you're a lawyer working in Canberra.

Commenter

bg

Date and time

June 12, 2014, 10:28AM

Spot on!

Commenter

David

Date and time

June 12, 2014, 10:37AM

your comment hits the nail on head. In Singapore for example you can borrow at 2.8%. Developers regularly advertise for the sale of new properties in Australia. eg 3 bedroom house in new development in Melbourne, guaranteed rental income for two years, no stamp duty, $10k deposit only.

Spot on slave. Negative interest rates set by European Central Bank only available to those in the game. The gap between the mega rich and everyone else continues to widen.

Commenter

Tom

Location

Melbourne

Date and time

June 12, 2014, 11:31AM

GET IT RIGHT FOLKS, its not really house prices as they are low, ITS LAND PRICES, they are extremely high, so much so its often viable to pull down an old house and rebuild the new. It is the rise in land prices that has created PROPERTY sales to be too high.

Commenter

Brian Woods

Location

Glenroy

Date and time

June 12, 2014, 11:51AM

Agreed....also, foreign ownership laws need to be tightened up and enforced - How is it fair that wealthy foreigners can buy property here when many Australians cannot do so ? It is one of the ways, along with ridiculous immigration levels, that the government is artifically propping up house prices

Commenter

Lady

Location

Melbourne

Date and time

June 12, 2014, 12:49PM

Hey @slaves, that negative interest rates in Europe, zero in the US is only for the banks, building societies and fund managers. Our rate is currently 2.5% - can you get a loan for that %age? The negative rate in the Euro zone is to make banks free up lending to other fund managers, they are not paying people interest to take out loans.

Commenter

tempril

Date and time

June 12, 2014, 2:22PM

What was once a houses and holes economy is fast turning into simply a houses economy. Macroprudential now or else we risk going the way of Ireland or worse, the US.